Government intervention and firm long-term bank debt: evidence from China
Abstract
Purpose
This paper aims to examine whether government intervention acts as a substitution mechanism for laws and institutions in affecting firms’ long-term debt financing decision and the moderating effect of firm ownership on the relationship between law and finance in Chinese capital market.
Design/methodology/approach
This study uses ordinary least squares with standard errors clustered at the firm level in the regressions. To address the potential endogeneity problem, the authors also use the system generalized method of moments in their estimation.
Findings
The results show that both long-term bank debt and long-term bank debt maturity structure ratios are positively related to government intervention. The results also reveal that with improvement in the legal environment, public non-state-owned firms have more access to long-term bank debt in the regions where the level of government intervention is low.
Research limitations/implications
Government intervention appears to replace laws and institutions in influencing the allocation of financial resources in China.
Originality/value
The finding suggests the necessity of increasing the protection of both creditors and investors, and shows the importance of a free and independent judiciary system in allocating funds to private firms. The results also imply that the non-state-owned Chinese firms also benefit from the improved laws and institutions.
Keywords
Acknowledgements
This work was supported by the 2014 Ministry of Education (China PR) Humanities and Social Sciences Research Project under Grant (14YJCZH094).
Citation
Liu, F., Bian, C. and Gan, C. (2018), "Government intervention and firm long-term bank debt: evidence from China", Journal of Asia Business Studies, Vol. 12 No. 2, pp. 137-150. https://doi.org/10.1108/JABS-03-2016-0040
Publisher
:Emerald Publishing Limited
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